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COMES AT A COST

After relying heavily on federal Community Development Block Grant funding and proceeds from the 2010 sale of the former Regency Hotel to prevent a negative effect on local coffers, Binghamton officials plan to dip into city taxpayer funds next year to pay off at least a portion of the $1.15 million outstanding debt stemming from a federal loan with a history of problems. Mayor Matthew T. Ryan and city council are expected to determine how much that amount will be during the 2013 budget deliberations, which will begin after the mayor’s budget address on Sept. 12.

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BINGHAMTON — Since the city sold the former Regency Hotel and Conference Center in 2010 to a Westchester County real estate development group, the once-troubled business has undergone a transformation.

The new owners of the renamed Binghamton Riverwalk Hotel & Conference Center, on Water Street, have invested in extensive renovations, hired 40 new workers and secured a deal with an international hotel chain that experts say will benefit the business.

The city government that helped pave the way for the new owner’s success, however, continues to struggle to find ways to repay a significant debt Binghamton owes due to the hotel’s saga of mismanagement that preceded the sale.

The debt stems from a federal loan tied to the initial development of the hotel that has a history of problems spanning more than 25 years. Those difficulties eventually led to the city taking responsibility for a $7.5 million debt owed to the federal Department of Housing and Urban Development.

After paying off large chunks of the loan debt with federal funds over the years, collecting payments from the original development group, Sarbro Associates, and utilizing proceeds from the sale in 2010, the city still owes slightly more than $2.8 million to HUD.

The $2.8 million debt is expected to drop to $1.15 million when the city receives the remaining 2010 hotel sale proceeds.

Federal funds, which could be used for other programs, will pay for a portion of the debt, but city taxpayers will also likely have to chip in, officials said.

Councilman Chris Papastrat, R-5th District, said the effect on taxpayers will become more clear following Ryan’s 2013 budget address.

“Any time you’re going to have to pay extra money, it’s going to affect other services,” Papastrat said. “It’s going to be quite the balancing act.”

The city also must make equal annual payments totalling $152,770 over the next three years to settle unpaid taxes and interest and penalties on the hotel property. This cost adds to the $101,846 the city has already paid Broome County to cover previous outstanding tax bills tied to the property.

HUD officials say they continue to monitor the loan repayment progress following a 2010 audit that determined Binghamton mismanaged the federal loan program, known as Section 108, and diminished the amount of federal Community Development Block Grant funding available for other programs.

Ryan declined to discuss the audit’s findings, saying in a recent interview his administration has cooperated with HUD to resolve the loan debt that originated long before he took office in 2006.

Ryan touted the sale in 2010 as the “best thing that’s ever happened to the property,” adding the city’s previous attempts to sell the hotel had been derailed by one company filing for bankruptcy and another failing to secure financing.

“We finally have the project on the right track, and it’s finally fulfilling what the purpose was of economic development,” Ryan said.

The city, which ran the hotel at a substantial loss for several years, sold it for $3.625 million to the new ownership team headed by Alfred Weissman, whose real estate firm Alfred Weissman Real Estate Inc. also owns the 20 Hawley St. student housing project.

In a recent interview, Weissman declined to answer questions about the hotel’s previous owners, including the city.

“My history on that building starts on the day we bought it,” he said.

Ryan said his administration is requesting that HUD extend the repayment schedule for the remaining loan debt, in order to minimize the negative effect on CDBG programs and the city’s budget moving forward.

He would not disclose details about the request, saying the issue is among those that will be discussed during 2013 budget deliberations.

Needs improvement

A December 2010 HUD audit determined the city failed to properly administer the Regency Hotel Section 108 loan agreement. The report blamed the failure for diminishing the pool of CDBG funding available for other programs that benefit low- and moderate-income residents.

The 2013 CDBG spending plan, which is subject to change if HUD approves Ryan’s request to extend the loan repayment timetable, set aside more than $260,000 for repaying the debt on loans for the former Regency Hotel and a similar Section 108 project.

This money comes out of the $1.7 million in the city’s overall CDBG funding for 2013, which is down 18 percent from this year. These funds go toward community projects ranging from subsidies to public infrastructure.

Among the HUD audit report findings was the city’s failure to monitor the loan repayment and address defaults in a timely manner. The report also cited the city for violations of provisions of the loan contract with HUD and misuse of program income intended for debt obligations.

The report noted the city also failed to ensure the hotel hired the 230 people required by the loan program, falling short by about 100 jobs.

Findings of the city’s mismanagement of the loan program span from 1991 through 2010, leading to the debt repayment schedule that is being monitored by HUD, according to Adam Glantz, a HUD spokesman.

“The report indicated a number of areas in need of improvement in the city’s record-keeping, processing, monitoring and tracking” of the loan program, he said.

In addition to the Regency, the audit also looked into another $1.4 million Section 108 loan Binghamton administered for the Hotel DeVille. The report found the city mismanaged this loan and cited similar failures to the former Regency Hotel loan, indicating the two separate loans burdened the city with debt that could have been minimized if the program was administered more effectively.

Glantz said the city is cooperating with HUD and following the Section 108 loan repayment schedules established following the audit.

Looking forward

HUD officials describe the Section 108 program as an inherently risky economic development tool, leaving numerous municipalities with burdensome debt.

They compare the program to co-signing a car loan, explaining that when an owner defaults, the debt repayment falls to the co-signer. In the Section 108 program, the co-signer is the municipality administering the loan.

Glantz said these loans fill a vacuum when there’s no private financing available.

“Without government assistance, many of these projects would not be undertaken,” he said.